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Friday, 21 November 2008
China’s Accounting Standard Recognized in the European Union
China’s new accounting standard has received approval from the European Securities Committee (ESC), the first time its accounting standard have been officially accepted for a major international capital market.
China’s Accounting Standard Recognized in the European Union
20 November 2008
China’s new accounting standard has received approval from the European Securities Committee (ESC), the first time its accounting standard have been officially accepted for a major international capital market.
The equivalence of accounting standards means the accounting standard of one country has the same effectiveness as those of other countries, and is accepted by supervisory departments of countries in which a company would want to list on the stock exchange.
On November 14, members of ESC decided that during the transitional period from 2009 to 2011, the European Union will allow Chinese securities issuers to adopt the Chinese accounting standard when entering the European market.
The Ministry of Finance said the decision of the European Union demonstrates the equivalence between the Chinese standard and the International Financial Reporting Standards (IFRS). This will cut Chinese companies’ costs when going public in the EU. On the other hand, this will also improve the export environment for Chinese companies and relieve anti-dumping pressure.
An Ernst & Young auditor said that, in fact, after China implemented the new accounting standard in 2007, “there’s almost no difference” between the Chinese and international standard.
The new accounting standard brings in the concept of “fair value,” which is its biggest difference with the previous Chinese standard.
“Fair value” accounting is now a hotly debated issue in financial and business circles. Some blame it for worsening the present financial crisis, its “mark to market” system forcing firms to place values on assets too quickly, especially when those values are dipping, and adding instability to already falling markets. When assets are used as collateral, falling prices “marked to market” can prompt lenders to issue margin calls, forcing borrowers to sell in market conditions that might be unfavorable, devaluing the assets even more, prompting more margin calls, in a downward spiral.
Industrial and Commercial Bank of China Chairman Yang Kaisheng says that the rule to calculate a company’s assets by market value is responsible for the current crisis. He adds that the international accounting standard should be reconsidered and adjusted.
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China’s Accounting Standard Recognized in the European Union
20 November 2008
China’s new accounting standard has received approval from the European Securities Committee (ESC), the first time its accounting standard have been officially accepted for a major international capital market.
The equivalence of accounting standards means the accounting standard of one country has the same effectiveness as those of other countries, and is accepted by supervisory departments of countries in which a company would want to list on the stock exchange.
On November 14, members of ESC decided that during the transitional period from 2009 to 2011, the European Union will allow Chinese securities issuers to adopt the Chinese accounting standard when entering the European market.
The Ministry of Finance said the decision of the European Union demonstrates the equivalence between the Chinese standard and the International Financial Reporting Standards (IFRS). This will cut Chinese companies’ costs when going public in the EU. On the other hand, this will also improve the export environment for Chinese companies and relieve anti-dumping pressure.
An Ernst & Young auditor said that, in fact, after China implemented the new accounting standard in 2007, “there’s almost no difference” between the Chinese and international standard.
The new accounting standard brings in the concept of “fair value,” which is its biggest difference with the previous Chinese standard.
“Fair value” accounting is now a hotly debated issue in financial and business circles. Some blame it for worsening the present financial crisis, its “mark to market” system forcing firms to place values on assets too quickly, especially when those values are dipping, and adding instability to already falling markets. When assets are used as collateral, falling prices “marked to market” can prompt lenders to issue margin calls, forcing borrowers to sell in market conditions that might be unfavorable, devaluing the assets even more, prompting more margin calls, in a downward spiral.
Industrial and Commercial Bank of China Chairman Yang Kaisheng says that the rule to calculate a company’s assets by market value is responsible for the current crisis. He adds that the international accounting standard should be reconsidered and adjusted.
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